Beware failing at digital transformation


TL;DR version

There’s no shortcut to digital transformation. You will need to fail many times until you find the right formula, and it’s very hard for everyone to accept and move past failure.

“Digital transformation is an empty suitcase. Everyone is carrying it around, but no one knows what’s inside,” wrote David Rogers, faculty director at Columbia Business School and author of The Digital Transformation Playbook.

Every company wants to become the Uber or Airbnb of its industry, and many organisations have embarked on their “digital transformation” journey, but they generally don’t know where to go.

Having worked on multiple digital transformation initiatives across the Middle East, in addition to attending several courses, workshops, and conferences on the topic, I would like to share some of the issues being faced at some of those companies. This article does not offer a silver bullet or claim to have the solution to digital transformation; it is intended to highlight the complications faced in the different approaches to digital transformation and recommend some precautions to be taken.

To start with, however, I would like to shed light on one of the biggest debates in the industry: is it “digital transformation” or “transformation in a digital world”? At first this sounds like just a semantic nuance. However, it has much deeper repercussions. The former says that you want to become a digital organisation, while the latter says you want to change how you work in order to suit today’s consumer requirements. I only mention this to highlight that the change required is one at a business level and not a technical one.

There are several ways in which companies approach digital transformation:

1. Spin-off a digital brand/ company
2. Create a digital department
3. Buy a digital entity
4. Hire consultants
5. Create an accelerator

Digital spinoffs (DS) all start with a “garage” concept, whereby they want to operate as a startup, remaining agile and decentralised. The general idea behind DS is for an organisation to test what a digitally transformed version of itself will look like and how it will resonate with customers, with the ultimate intention of having the entire organisation evolve in the direction of the DS. Examples of this include Jawwy by STC, Anayou by du, Liv. by Emirates NBD, and WAVO by OSN.

DS employees are generally casually dressed, they have bean bags, Macs, a bright coloured logo, and get priority treatment with all forms of exceptions from procurement (to speed up RFPs), HR (to hire more expensive resources quickly) and IT (to access all websites and online sharing tools).

The main problems such entities face is resistance from everyone at the mother company. They are seen as a threat to the staff of the mother company because they are the modern, hip version of them with a mandate to do their job in a better way; which ends up creating demotivation and a lack of cooperation. How would you feel if your employer gets a younger, prettier, more efficient version of you and treats them a lot better? Procurement, HR and IT of the mother company usually get very frustrated with the amount of exceptions and unorthodox requirements of the DS. There is also a significant fear of existing revenue cannibalisation, whereby the mother company sees the DS as a threat; this makes the job of the DS much more difficult because it will need to walk on egg shells and avoid operating at its full potential. All these issues create a lot of inefficiencies in the DS operations, defying the initial objective of agility.

The most common transformation type is hiring or assigning a C-level executive with the mission to transform the  company. Zain KSA, for example, hired a chief transformation officer, whereas many others assign this role to the chief technology officer. This usually compartmentalises the transformation process within a specific department or even function, such as IT, strategy, marketing or HR, depending on the C-level executive managing it.

When digital transformation is managed by IT it tends to be a much more technical, as opposed business transformation-focused, losing out on a lot of the business process transformation required. When it is managed by the chief strategy officer, it tends to be more theory and “strategery”, with much less operational involvement.

It is very difficult for one department to “transform” all other departments, because change needs to come from within. So it is recommended to have transformation “advocates” in each department who work directly with the transformation team.

It is important that the CEO champions the transformation within the organisation, because big companies tend to follow the HiPPO approach (highest paid person’s opinion), and in many cases the executive leading the transformation will not have authority over other executives whose departments she needs to transform. Other issues arise when the transformation directly impacts people’s roles and compensation. For example, the effect of online sales on the sales commission for shop staff.

Some companies try to buy their way into digital transformation by acquiring a digital team or department. This was the case with Leo Burnett acquiring Flip, JWT acquiring Cleartag, and Grey acquiring Hug. The main challenge in this is obviously integration, because a small nimble player will find it almost impossible to transform a mammoth and what usually ends up happening is the acquired entity gets bogged down with the processes, bureaucracy and culture of the acquiring entity. Companies are like the human body in that they tend to create antibodies to fight foreign bodies.

When in doubt, hire a consultant. Management consulting firms hit a goldmine with digital transformation; a lot of them actually created “digital” entities such as Mckinsey Digital Labs, Accenture Digital, and Deloitte Digital, whereas others such as Delta Partners and Strategy& created digital practices (centres of excellence) within their organisations. Digital transformation scopes with management consultancies start by defining a digital transformation roadmap. However, because digital transformation is something that involves every aspect of a company the consultants tend to end up with an ever-expanding scope tackling every department, system and resource. Because consultants only “consult”, and the transformation process requires a significant amount of on-ground work and a mindset change among the workforce, a lot of the projects end up as beautiful decks on the hard drives of executives.

Some companies approach digital transformation, by creating VC-style funds or even accelerators to identify, invest in and learn from the latest startups and entrepreneurs. Mobily Ventures and STC Ventures are such initiatives by Mobily and STC in KSA. Other companies have sponsored, invested in or worked with existing funds. This is in theory an excellent idea, but it generally falls short by not being able to find, attract or utilise the right startups.

Now that my pessimistic view has highlighted the negatives of all the approaches, I want to say that the process of digital transforma- tion will definitely involve a lot of failures, and unless you can tolerate and power through such failures you will never be able to transform.

When venturing into new territories one needs to feel one’s way around, and in many cases it takes falling into a ditch for us to realise that we are going in the wrong direction. Every change, transformation or innovation comes with its own problems; and if Uber and Airbnb are the benchmarks you probably know that they didn’t have it easy. A key skill necessary for companies to change is the willingness to fail and the ability to be able to quickly pull the plug on a failing project and pivot, along with the ability to admit failure – which is often prevented by regional egos.

Companies are like human beings; they make decisions based on past experience. This makes the decision-making process around transformation much more difficult, which is why one needs to fall in love with the problem and not the solution in order to lead a successful transformation.

As clichéd as it sounds, it’s very hard to teach an old dog new tricks and you definitely can’t do it by only getting a consultant to recommend new tricks, nor by getting a new dog. There’s no shortcut. It’s a long and tedious process that involves hiring new people, involving all departments, a CEO sponsorship, testing several initiatives, and a lot of failures.

The best advice would be to start with solving either the easiest or the hardest problem; because the ease and success of the former will give you the motivation needed to succeed, and the sense of accomplishment after the latter will help you persevere knowing that you have crossed the biggest hurdle.